According to many sources, there were over $100 billion dollars worth of bonds snapped up in November. Companies are trying to front run the dividend tax increase. Issuing one-time dividends now will allow shareholders to pay 15% in tax, as opposed to the near 40% after the cliff. Some of the firms jumping on this trend include LVS (announced a $2.75/share or about 6% dividend), DDS (announced a $5/share or about 5.6% dividend), WLK (announced a $3.75/share or about 6% dividend), COST (announced a $7/share or about 6.7% dividend) and ABT announced that they will issue cash as opposed to fractional shares…a form of a special dividend for shareholders on record as of Dec 12th 2012.
What can be implied from this action? Regardless of political opinion, it is clear that corporate America has their shareholder interests in mind. Pushing through these dividends will keep cash in the hands of consumers as opposed to inefficient government.
Perhaps it will be prudent to keep an eye on cash rich companies to maybe front run these announcements. There is also the REIT trade to keep an eye on…AGNC and NLY, for these stocks may have valuation changes when taxes change. These stocks yield 15.8% and 14% annually respectively.
Political positions are dynamic, and considering the ‘closed door’ negotiations that go on, one should stay skeptical and nimble in the market. The market’s ATR (average true range) is up 60% from September 2012…from $1 in the SPY to nearly $1.6 now, over a 14-day period. The market is perpetually trying to find its true value and this increase in range indicates that the market is swinging more due to events that are constantly changing valuations.
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